The weighted tax-to-GDP ratio (i.e. the total amount of taxes and social security contributions) in the EU27 increased to 39.9% in 2006 from 39.3% in 2005. The EU27 tax ratio is nevertheless lower than in 1996 (40.3%) and the peak of 41.0% in 1999. The downtrend which had started in 1999 in most Member States stopped in 2005. In 2006, the overall tax ratio in the euro area (EA15) was 40.5%, up from 39.8% in 2005. Since 1996, taxes in the euro area have followed a similar trend to the EU27, although at a slightly higher level.

EU tax levels remain generally high in comparison with the rest of the world, with the EU27 tax ratio exceeding those of the USA and Japan by some 12 percentage points. However, the tax burden varies significantly between Member States, ranging in 2006 from less than 30% in Romania (28.6%), Slovakia (29.3%) and Lithuania (29.7%), to almost 50% in Denmark (49.1%) and Sweden (48.9%).

In the past decade significant changes in tax-to-GDP ratios have taken place in several Member States. The largest falls were recorded in Slovakia, where the overall tax burden dropped from 39.4% in 1996 to 29.3% in 2006, and Estonia (from 35.1% to 31.0%). The highest increases were observed in Cyprus (from 26.4% to 36.6%) and Malta (from 25.4% to 33.8%).

Labour taxes remain the largest source of tax revenue, representing close to half of total tax receipts in the EU27. Taxes on capital accounted for approximately 23% of total tax receipts, and consumption taxes 28%.

This information comes from the publication Taxation trends in the European Union: Data for the EU Member States and Norway issued by Eurostat, the Statistical Office of the European Communities and the Commission’s Directorate-General for Taxation and Customs Union. This publication compiles tax indicators in a harmonised framework based on the European System of Accounts (ESA 95), allowing accurate comparison of the tax systems and tax policies between EU Member States.

Tax burden has increased more on capital than on labour and consumption

For the EU27 as a whole, the average implicit tax rate (ITR) on labour (including social contributions), the preferred indicator for the average tax burden, amounted to 34.8% in 2006, compared with 34.6% in 2005. The decline registered since 2000 stopped in 2005, despite a wide consensus on the desirability of reducing labour taxes. However, the tax burden is still lower than its maximum of 36.2% in 2000. Among the Member States, in 2006 this rate ranged from 21.5% in Malta, 24.2% in Cyprus, 25.1% in Ireland and 25.5% in the United Kingdom, to 44.5% in Sweden, 43.0% in Italy, 42.8% in Belgium and 42.1% in France. Despite the presence of a number of low taxing countries, taxation on labour is, on average, much higher in the EU than in the other main industrialised economies.

In line with the development over the last few years, the average implicit tax rate on consumption in the EU27 increased again in 2006, though only marginally, from 22.0% to 22.1%. Consumption was most taxed in Denmark (34.0%), Sweden (28.1%) and Finland (27.3%), while the lowest implicit rates were registered in Spain (16.4%), Lithuania (16.7%) and Italy (17.2%).

The average implicit tax rate on capital in the EU27 rose sharply from 26.8% in 2005 to 29.0% in 2006, which could be mainly attributed to business cycle effects. There is considerable disparity in this ratio: among the Member States for which 2006 data are available, the highest implicit tax rates on capital were recorded in Ireland (42.5%), France (41.5%) and Denmark (40.9%), and the lowest in Estonia (8.4%) and Lithuania (14.1%). Latvia registered 9.6% in 2005.

Environmental tax revenues declined to lowest level in a decade

Despite intense public interest in environmental issues, environmental tax revenues in the EU27 have been declining since 1999; their 2006 level, 2.6% of GDP, is the lowest in a decade. This drop is due to lower energy taxation, as revenues from the other environmental taxes have remained broadly stable.

Top personal and corporate income tax rates on average lower in the new Member States

The top personal income tax rate differs substantially within the EU. The highest top rates on 2007 personal income were found in Denmark (59.0%), Sweden (56.6%), the Netherlands (52.0%) and Finland (50.5%), and the lowest in Romania (16.0%), Slovakia (19.0%), Estonia (22.0%) and Bulgaria (24.0%).

For corporate income tax, the highest adjusted top statutory tax rates6 on 2008 income were recorded in Malta (35.0%), France (34.4%), Belgium (34.0%) and Italy (31.4%), and the lowest in Bulgaria and Cyprus (both 10.0%), Ireland (12.5%), Latvia and Lithuania (both 15.0%).

Over recent years, top rates have shown a clear downward trend in the whole of the EU, particularly in the corporate area. In 2008, Germany (-8.9 percentage points), Italy (-5.9), the Czech Republic (-3.0), and Lithuania (-3.0) decreased their top rates most significantly. On average, the new Member States display markedly lower top rates.